Fiat Chrysler raises outlook as Q2 profits jump 25 percent

That wasn’t the case, however.

The net effect of the revisions is that the company actually understated its sales by almost 19,000 vehicles during the past 5 1/2 years, Fiat Chrysler said.

Fiat Chrysler’s strengths such as its increase in net income, revenue growth and growth in earnings per share are countered by weaknesses including weak operating cash flow, disappointing return on equity and poor profit margins.

It wasn’t just a solid quarter based on the raw financial data, either.

“FCA noted that Moody’s Investors Service had raised its corporate credit rating to “Ba3” from “B1″ and rating on bonds issued or guaranteed by FCA from B2” to “B1” with “Stable” outlook. Adjusted operating profit rose 16% to 1.63 billion euros ($1.8 billion), in line with analysts’ estimates of 1.64 billion euros.

In North America, Fiat’s largest market by a country mile, the company posted a 2% fall in shipments to 666,000 in the second quarter, though profits rose 4 per cent to €1.4bn, partly due to good sales of SUVs and trucks.

It’s clear looking at the figures that a favorable product mix is driving the stronger results for FCA. This is a drop the from €28.54 billion that it reported in the second quarter of 2015.

The minimal progress Fiat Chrysler made with its North American profit margin in the quarter suggests the company’s improved profitability in recent quarters is running out of steam, wrote Evercore ISI in a note.

FCA confirmed July 18 that its sales reporting process was under investigation by the Securities and Exchange Commission and the U.S. Department of Justice after reports in Bloomberg News and Automotive News.

Jeep’s European sales rose 24.5% in the first half of the year to 53,555 units. The question is what happens if it can’t find a partner to produce those vehicles?

CEO Sergio Marchionne indicated that those figures were conservative, saying “there is a big plus sign” on them. For instance, if FCA’s only option is having a production partner in China, it could end up being more costly to ship those vehicles back overseas to sell in the USA market than if it can find a production partner located in Mexico. FCA wouldn’t say when it would reopen, but until it does, the company’s Warren, Michigan, truck plant will keep making Rams. But the company remains heavily dependent on North America where it generates about two-thirds of sales and four-fifths of profit.

Another huge factor is that, despite the company having reduced net debt levels during the second quarter, it still has an elevated level of debt compared to its competitors.

In the second quarter, earnings before interest and taxes fell 14 percent to 1.06 billion euros because of 414 million euros in charges for recalling cars with defective Takata Corp. air bags.

Market share in United States increased to 12.7% and, in Europe, to 6.8%.